The following article by David Haggith was published on The Great Recession Blog: 

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Submitted by Ronan Manly, Bullionstar.com

In February 2017 while preparing for a presentation in Gothenburg about central bank gold, I emailed Sweden’s central bank, the Riksbank, enquiring whether the Riksbank physically audits Sweden’s gold and whether it would provide me with a gold bar weight list of Sweden’s gold reserves (gold bar holdings). The Swedish official gold reserves are significant and amount to 125.7 tonnes, making the Swedish nation the world’s 28th largest official gold holder.

Before looking at the questions put to the Riksbank and the Riksbank’s responses, some background information is useful. Sweden’s central bank, Sveriges Riksbank aka Riksbanken or Riksbank, has the distinction of being the world’s oldest central bank (founded in 1668). The bank is responsible for the administration of Swedish monetary policy and the issuance of the Swedish currency, the Krona.

Since Sweden is a member of the EU, the Riksbank is a member of the European System of Central Banks (ESCB), but since Sweden does not use the Euro, the Riksbank is not a central bank member of the European Central Bank (ECB). Therefore the Riksbank has a degree of independence that ECB member central banks lack, but still finds itself under the umbrella of the ESCB. Since it issues its own currency, the Riksbank is responsible for the management of the Swedish Krona exchange rate against other currencies, a task which should be borne in mind while reading the below.

On 28 October 2013, the Riksbank for the first time revealed the storage locations of its gold reserves via publication of the following list of five storage locations (four of these locations are outside Sweden) and the percentage and gold tonnage stored at each location:

• Bank of England               61.4 tonnes (48.8%)
• Bank of Canada               33.2 tonnes (26.4%)
• Federal Reserve Bank   13.2 tonnes (10.5%)
• Swiss National Bank        2.8 tonnes (2.2%)
• Sveriges Riksbank         15.1 tonnes (12.0%)

The storage locations of Sweden’s official Gold Reserves: Total 125.7 tonnes

Nearly half of Sweden’s gold is stored at the Bank of England in London.

Another quarter of the Swedish gold is supposedly stored with the Bank of Canada. The Bank of Canada’s gold vault was located under it’s headquarters building on Wellington Street in Ottawa. However, this Bank of Canada building has undergone a complete renovation and has been completely empty for a number of years, so wherever Sweden’s gold is in Ottawa, it has not been in the Bank of Canada’s gold vault for the last number of years.

Three other central banks claim to hold gold with the Bank of Canada. Thes are the central banks of Switzerland, the Netherlands and Belgium. The Swedish gold in Canada (along with gold holdings owned by the Swiss, Dutch and Belgians) could, however, have been moved to the Royal Canadian Mint’s vault which is also in Ottawa. Bank of Canada staff are now moving back into the Wellington Street building this year. But is the Swedish (and Swiss, Dutch and Belgian) gold moving back also or does it even exist? The location of the Swedish gold in Ottawa is therefore a mystery and is something the Swedish population should be concerned about.

Just over 10% of the Swedish gold is supposedly held in the famous (infamous) Manhattan gold vault of the Federal Reserve Bank of New York (FRBNY) under the 33 Liberty building. Given the complete lack of cooperation of the FRBNY in ever answering any questions about foreign gold holdings in this vault, then good luck to Swedish citizens in trying to ascertain that gold’s whereabouts or even convincing the Riksbank to repatriate that gold.

A very tiny 2% of Swedish gold is also listed as being held with the Swiss National Bank (SNB). The SNB gold vault is in Berne under its headquarters building on Bundesplatz.

The Riksbank also claims to hold 15.1 tonnes of its gold (12%) in its own storage, i.e. stored domestically in Sweden. Interestingly, on 30 October 2013, just two days after the Riksbank released details of its gold storage locations, Finland’s central bank in neighbouring Helsinki, the Bank of Finland, also released the storage locations of its 49 tonnes gold reserves in a move which looks to have been coordinated with the Riksbank. The Bank of Finland claims its 49 tonnes of gold is spread out as follows: 51% at the Bank of England, 20% at the Riksbank in Sweden, 18% at the Federal Reserve Bank of New York, 7% in Switzerland at the Swiss National Bank and 4% held in Finland by the Bank of Finland. This means that not only is the Riksbank supposedly storing 15.1 tonnes of Swedish gold, it also apparently is also storing 9.8 tonnes of Finland’s gold, making a grand total of 24.9 tonnes of gold stored with the Riksbank. The storage location of this 24.9 tonnes gold is unknown, but one possibility suggested by the Swedish blogger Cornucopia (Lars Wilderäng) is that this gold is being stored in the recently built Riksbank cash management building beside Stockholm’s Arlanda International Airport, a building which was completed in 2012.

On its website, the Riksbank states that its 125.7 tonnes of gold “is equivalent to around 10,000 gold bars”. A rough rule of thumb is that 1 tonne of gold consists of 80 Good Delivery Bars. These Good Delivery Gold gold bars are wholesale market gold bars which, although they are variable weight bars, usually each weigh in the region of 400 troy ounces or 12.5 kilograms. Hence 125.7 tonnes is roughly equal to 125.7 * 80 bars = 10,056 bars, which explains where the Riksbank gets its 10,000 gold bar total figure from.

Using Gold for Foreign Exchange Interventions

On another page on its web site titled ‘Gold and Foreign Currency Reserve’, the Riksbank is surprisingly open about the uses to which it puts its gold holdings, uses such as foreign exchange interventions and emergency liquidity:

“The gold and foreign currency reserve can primarily be used to provide emergency liquidity assistance to banks, to fulfil Sweden’s share of the international lending of the International Monetary Fund (IMF) and to intervene on the foreign exchange market, if need be.”

This is not a misprint and is not a statement that somehow only applies to the ‘foreign currency reserve’ component of the reserves, since the same web page goes on to specifically say that:

“The gold can be used to fund emergency liquidity assistance or foreign exchange interventions, among other things.”

Therefore, the Riksbank is conceding that at least some of its gold is actively used in central bank operations and that this gold does not merely sit in quiet unencumbered storage. On the contrary, this gold at times has additional claims and titles attached to it due to being loaned or swapped.

When the Riksbank revealed its gold storage locations back in October 2013, this news was covered by a number of Swedish media outlets, one of which was the Stockholm-based financial newspaper Dagens Industri, commonly known as DI. DI’s article on the topic, published in Swedish with a title translated as “Here is the Swedish Gold“,  also featured a series of questions and answers from personnel from the Riksbank asset management department. Some of these answers are worth highlighting here as they touch on the active management of the Swedish gold and also the shockingly poor auditing of the Swedish gold.

In the DI article, Göran Robertsson, Deputy Head of Riksbank’s asset management department, noted that historically the Swedish gold was stored at geographically diversified locations for security reasons, but that this same geographic distribution is now primarily aimed at facilitating the rapid exchange of Swedish gold for major foreign currencies, hence the reason that nearly half of the Swedish gold is held in the Bank of England gold vaults – since the Bank of England London vaults are where gold swaps and gold loans take place.

Robertsson noted that over the 2008-2009 period, 50 tonnes of gold Swedish gold located at the Bank of England was exchanged for US dollars: 

“London is the dominant international marketplace for gold. We used the gold 2008-2009 during the financial crisis when we switched it to the dollar we then lent to Swedish banks”

One of these Riskbank gold-US Dollar swap transaction was also referenced in a 2011 World Gold Council report on gold market liquidity. This report stated that in 2008 following the Lehman collapse:

“In order to be able to provide liquidity to the Scandinavian banking system, the Swedish Riksbank utilised its gold reserves by swapping some of its gold to obtain dollar liquidity before it was able to gain access to the US dollar swap facilities with the Federal Reserve.” 

In the October 2013 DI interview, Göran Robertsson also noted that at some point following this gold – dollar exchange, “the size of the reserve was restored“, which presumably means that the Riksbank received back 50 tonnes of gold. As to whether the restoration of the gold holdings was the exact same 50 tonnes of gold as had been previously held (the same  gold bars) is not clear.

Sophie Degenne, Head of the Riksbank’s asset management department, also noted that:

“The main purpose of the gold and foreign exchange reserves is to use it when needed, as in the financial crisis”

Auditing of the Swedish Gold

On the subject of so-called transparency and auditing of the gold, Sophie Degenne said the following in the same DI interview:

“Why do you reveal at which central banks the gold is located? 
It is a part of the Riksbank endeavours to be as transparent as we can. We have engaged in dialogue with the relevant central banks”

How do you verify that the gold is really where it should be? 
“We have our own listings of where it is. We reconcile these against extracts that we receive once a year. From now on, we will also start with our own inspections.”

Therefore, the Riksbank gold auditing procedure at that time was one of merely comparing one piece of paper to another piece of paper and in no way involved physically auditing the gold bars in any of the foreign locations. These weak audit methods of the Swedish gold were first highlighted by Liberty Silver CEO, Mikael From in Stockholm-based news daily Aftonbladet’s coverage of the Swedish gold storage locations in an article in early November 2013 titled “Questions about Sweden’s gold reserves persist“.

In Aftonbladet’s article, Mikael From stated that while it was welcome that the Riksbank was at that point signalling an ambition to inspect the Swedish gold reserves, it was not clear that the Riksbank would be conducting a proper audit of the gold reserves at the time of inspection, although such a proper audit would be highly desirable. Mikael stated that without such a proper audit, and without witnessing the gold with their own eyes, the Riksbank and the Swedish State could not be certain that the Swedish gold actually existed.

He also called for the Riksbank to provide information proving that the Swedish gold actually exists in its claimed storage locations. This was particulaly important due to a portion of the Swedish gold supposedly being stored at the gold vault of the Federal Reserve Bank of New York (NYFED), a storage location which had in the past been non-cooperative and problematic for the German Federal Court of Auditors when they tried to examine the NYFED’s storage arrangements in 2011/2012.

Questions to the Swedish Riksbank – February 2017

Turning now to the questions which I posed to the Swedish Riksbank in early February 2017 about its gold reserves. I asked the Riskbank two basic and simple questions as follows:

“I am undertaking research into central bank gold reserves, including the gold reserves held by the Riksbank at its 5 storage facilities. 

1. Are the gold bars held by the Riksbank in its foreign storage facilities physically audited by the Riksbank (i.e. stored at Bank of England, Bank of Canada, Federal Reserve New York and Swiss National Bank)? In other words, does the Riksbank have a physical audit program for this gold?

2. Secondly, would the Riksbank be able to send me a gold bar weight list which shows the gold bar holdings details for the 125.7 tonnes of gold held by the Riksbank. A weight list being the industry standard list showing bar brand (refiner), serial number, gross weight, fineness, fine weight etc.

A few days after I submitted my questions, the Presschef/Chief Press Officer of the Riksbank responded as follows. On the subject of auditing:

“Answer 1: Yes, the Riksbank performs regularly physical audits of its gold.“

In response to the question about a gold bar weight list, the Chief Press Officer said:

Answer 2: The Riksbank publishes information about where the gold is stored and how much in tonnes is at each place. See table (same distribution table as above). However, the Riksbank does not publish weight lists or other details of the gold holdings.“

So here we have the Riksbank claiming that it personally now performs physical audits of its gold on a regular basis. This is the first time in the public domain, as far as I know, that the Riksbank is claiming to have undertaken physical gold audits of its gold holdings, and it goes beyond the 2013 statement from the Riksbank’s Sophie Degenne when she said “we will also start with our own inspections“.

But critically ,there was zero proof offered by the Riksbank to me, or on its website, that it has undertaken any physical gold audits. There is no documentation or evidence whatsoever that any physical audits have ever been conducted on any of the 10,000 gold bars in any of the 5 supposed storage locations that the Riksbank claims to store gold bars at. Contrast this to the bi-annual physical audits which are carried out on the gold bars in the SPDR Gold Trust (GLD) which are published on the GLD website.

In any other industry, there would be an outcry and court cases and litigation if an entity claimed it had conducted audits while offering no proof of said audits. However, in the world of central banking, perversely, this secrecy is allowed to persist. This is outrageous to say the least and Swedish citizens should be very concerned about this lack of transparency of the Swedish gold reserves.

Official Secrecy about Swedish Gold Reserves

Given the brief and not very useful Riksbank responses to my 2 questions above, I sent a follow on email to the Riksbank asking why the Swedish central bank did not publish a gold bar weight list. My question was as follows:

“Is there any specific reason why the Riksbank does not publish a gold bar weight list in the way, for example, that a gold-backed ETF does publish such a weight list every trading day?

i.e. Why is the Riksbank not transparent about its gold bar holdings?”

This second email was answered by the Riksbank Head of Communications, as follows:

“This kind of information is covered by secrecy relating to foreign affairs, as well as security secrecy and surveillance secrecy in accordance with the relevant provisions in the Swedish Public Access to Information and Secrecy Act.

As far as we are aware of, the Riksbank is among the most transparent central banks, being public with information about the storage locations and volumes, but do let us know if any other central banks are offering the level of transparency you are asking for (except for Germany of course, which we are aware about).”

So here you can see here that gold, which in the words of the Wall Street Journal is just a ‘Pet Rock’, is covered by some very strong secrecy laws in Sweden. Why would a pet rock need ultra strong secrecy laws?

An explanatory document on Sweden’s “Public Access to Information and Secrecy Act” can be accessed here. In Sweden, the rules governing public access to official documents are covered by the Freedom of the Press Act. While its beyond topic to go into the details of Swedish secrecy laws right now, there is a short section in the document titled “What official documents may be kept secret?” (Section 2.2) which includes the following:

“The Freedom of the Press Act lists the interests that may be protected by keeping official documents secret:

• National security or Sweden’s relations with a foreign state or an international organisation;
• The central financial policy, the monetary policy, or the national foreign exchange policy;
• Inspection, control or other supervisory activities of a public authority;
• The interest of preventing or prosecuting crime;
• The public economic interest;
• The protection of the personal or economic circumstances of private subjects; or
• The preservation of animal or plant species.

Given that the Riksbank stated that the information in its gold bar weight lists was “covered by secrecy relating to foreign affairs, as well as security secrecy and surveillance secrecy”, I would hazard a guess that the Riksbank would try to reject Freedom of Information requests in this area by pointing to central bank gold storage and gold operations as falling under points 1 or 2, i.e. falling under national security or relations with a foreign state or international organisation, or else monetary policy / foreign exchange policy (especially given that the Riksbank uses gold reserves in its foreign currency interventions). Perhaps the Riksbank would also try to twist point 5 as an excuse, i.e. that it wouldn’t be in the public economic interest to release the Swedish gold bar details.

As to why the Riksbank and nearly all other central banks are ultra secretive about gold bar weight lists and even physical auditing of gold bar holdings usually boils down to the fact that, like the Riksbank, these gold bar holdings are actively managed and are often used in gold loans, gold swaps and even gold location swaps. If identifiable details of the gold bars of such central banks were in the public domain, given that these bars are involved in loans, currency swaps and location swaps, these gold bar details could begin to show up in the gold bar lists of other central banks or of the gold bar lists of publicly listed gold-backed Exchange Traded Funds. This would then blow the cover of the central banks which continue to maintain the fiction that their loaned and swapped gold is still held in unencumbered custody on their balance sheets, and would blow a hole in their contrived and corrupt accounting policies.

A Proposal to the Oldest Central Bank in the World

Since the Riksbank happened to ask me were there any central banks “offering the level of transparency [I was] asking for” i.e. providing gold bar weight lists, I decided to send a final response back to the Riksbank in early March highlighting the central banks that I am aware of that have published such gold bar weight lists, and I also took the opportunity of proposing that the Riksbank should follow suit in publishing its gold bar weight list. My letter to the Riksbank was as follows:

“You had asked which central banks offered a level of transparency on their gold holdings that include publication of a gold bar weight list. Apart from the Deutsche Bundesbank, which you know about, I can think of 3 central banks which have released weight lists of their gold bar holdings.

The 3 examples below (together with the Bundesbank) show that some of the most important central banks and monetary authorities in the world have now deemed it acceptable to include the release of gold bar weight lists as part of their gold communication transparency strategies. 

The 4 sets of weight lists below include gold bar holdings at the Bank of England (stored by Mexico, Australia, Germany), and at the Federal Reserve Bank of New York (stored by the US Treasury and Bundesbank). Together these two storage locations account for 60% of the Riksbank’s gold holdings (74.6 tonnes).

The Riksbank is the world’s oldest central bank and has a long track record of being progressive and transparent. By releasing the Riksbank’s gold bar weight lists for the gold bars stored over the 5 storage locations (London, New York, Ottawa, Berne and in Sweden), the Swedish central bank would be joining an elite group of central banks and monetary institutions that could be considered the early stage adopters of much needed transparency in this area.”

1. Bank of Mexico

Most recently in 2017, Bank of Mexico has released a weight list of its earmarked gold bars stored at the Bank of England. This list in pdf format can be downloaded here – > http://ift.tt/2oG7gBG

The Mexican list details 7265 gold bars held (about 90 tonnes), and includes bank of England internal sequence number, refiner brand, gross weight, assay (fineness), and fine weight.

See also http://ift.tt/2mxwEM0

 2. Reserve Bank of Australia

In July 2014, the Reserve Bank of Australia (RBA) released a weight list of 6313 gold bars (about 79 tonnes) that it has stored at the bank of England in London. See  http://ift.tt/2oGiW7p

The weight list in Excel format can be downloaded here http://ift.tt/2p0zTwB

The RBA list includes refiner brand, gross weight, assay (fineness), and fine weight, as well as bank of England account number.

3. US Treasury

In 2011, the US Treasury’s full detailed schedules of gold bars was published by the US House Committee on Financial Services as part of submissions for its hearing titled “Investigating the Gold: H.R. 1495, the Gold Reserve Transparency Act of 2011 and the Oversight of United States Gold Holdings”.

These US Treasury weight lists are as follows, and are downloadable from the financial services section of the “house.gov” web site.

• Weight list of all Treasury gold held at Fort Knox, Denver and West Point – 699,515 bars  – pdf format

http://ift.tt/1uCjOvJ

• Weight list of all Treasury gold held at Fort Knox, Denver and West Point – 699,515 bars – xlsformat

http://ift.tt/1ybw01P

• Weight List of Treasury gold held at the Federal Reserve Bank of New York (FRBNY) – 31,204 bars. List starts at page 132 of pdf (or page 128 of file) http://ift.tt/1uCjLQz

Deutsche Bundesbank

The Bundesbank weight list which you know about. The most recent version of this list was published on 23rd February 2017 and can be downloaded here http://ift.tt/2p0HzPy

The Bundesbank list show all the German gold bars held at the Bank of England, NY fed and Banque de France as well as in Frankfurt.”

Conclusion

As of now, the Swedish Riksbank has a) not published a gold bar weight list of any of its gold bar holdings and b) not acknowledged my follow up email where I listed the central banks that have produced such lists and suggested that the Riksbank do likewise.

The Swedish Riksbank claims to hold 10,000 large Good Delivery gold bars in 5 locations across the world and now claims to have conducted physical gold audits of this gold. Yet it has never published any physical gold audit results of any of these gold bars nor published any of the serial numbers of any of the 10,000 gold bars it claims to have in storage. For a so-called progressive democracy this is shocking, although not surprising given the arrogance and unaccountability of central bankers.

If someone with time on their hands, ideally a Swedish citizen, has an interest in this area, it would be worthwhile for them to research the rules of the Swedish Freedom of Information Act, and then craft a few carefully worded Freedom of Information requests to the Riksbank requesting physical audit documents and gold bar weight lists of Sweden’s 125.7 tonnes of gold that is supposedly held in London, New York, Ottawa, Berne and in Sweden. 

While these Freedom of Information requests would probably get rejected due a some spurious secrecy excuse and thrown back at the applicant in short order, at least its worth trying, and might even make a good story for the Swedish media to cover.

This article was first published on the BullionStar website as “Sweden’s Gold Reserves: 10,000 gold bars shrouded in Official Secrecy“.

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Authored by Mac Slavo via SHTFplan.com,

In late March U.S. intelligence sources announced that terrorist organizations have found a novel and deadly way to smuggle explosives onto airplanes utilizing everyday laptops. Though officials declined to provide additional details, some believe that the intelligence highlighting the new threat was the result of President Trump’s raid on an Al Queda compound in Yemen that left at least 14 Al Queda fighters. Navy SEAL Ryan Owens was also killed in the raid. The President called it a “winning mission,” and officials said the mission’s stated purpose, to gather information, had been accomplished.

If the information they deemed from the raid as revealed by U.S. intelligence sources to CNN is accurate, then travelling on airlines is about to get a lot more difficult for most modern-day passengers, who often carry electronic devices like phones, tablets and laptops when on the go.

Such devices have already been banned on all flights originating from Turkey, Lebanon, Egypt, Saudi Arabia, Jordan and Tunisia and now British Intelligence sources have said they are bracing for more widespread implementation that could ban the devices on every flight leaving Europe for the United States, including those originating from major airline hubs in London.

 

via http://ift.tt/2p0yHcF Tyler Durden

Having failed at the task for which she was hired (with Dan Loeb’s help) some five years ago, namely turning Yahoo around, and set to terminate her relationship with Yahoo after it is fully consumed by Verizon in a few months, there was speculation what if any golden, or lead, parachute Yahoo CEO Marissa Mayer would receive. The answer: the soon to be former YHOO Chief Executive is set to make at least $186 million as a result of the internet company’s sale of its core business to Verizon Communications Inc., according to securities filings, the WSJ reported.

The staggering figure is over seven times greater than the $23 million “golden parachute” Yahoo said last month that Mayer would receive as part of her planned departure from what’s left of the company after the sale to Verizon. Yahoo also said that Ms. Mayer held nearly 2.9 million stock options valued at $56.8 million as of early March. Somehow, an additional $100 million slipped through thre cracks.

We are not the only ones who are skeptical of Mayer’s tenure: as WSJ puts it, “the hefty pay out comes despite Ms. Mayer’s inability to accomplish what she was hired to do five years ago: revitalize the fading internet icon following its struggles with high employee and executive turnover and declines in ad revenue.”  She was lucky, though, in that just like a decade ago dumb money was rampant (who can possibly forget Microsoft’s failed acquisition of YHOO), so too this time Verizon showed up and acquired Yahoo’s core business— excluding some assets like its stakes in other internet companies — for $4.5 billion. That deal is expected to close in June, after months of delays following Yahoo’s disclosure of two massive security breaches.

As the WSJ adds, Yahoo shareholders will vote on the deal during a special meeting on June 8, according to a securities filing published Monday. The measure is expected to pass. As part of their severance package, Ms. Mayer and other top Yahoo executives are eligible for accelerated vesting of all stock options, restricted-stock units, and other equity-based awards outstanding when the deal closes, according to the filing.

For Ms. Mayer, that includes stock options valued at more than $84 million and restricted-stock units worth about $25 million at the current share price of $48.15. She also holds about 1.6 million Yahoo shares, worth nearly $77 million. Together, those amounts are worth $186 million at the current share price, according to the information in the filing. The figure doesn’t include salary, bonus or options she has already exercised.

To be sure, some have tried to moderate their criticism of Mayer with “supporters saying Ms. Mayer took on a steep challenge with Yahoo, but her managerial mistakes, including not cutting costs quickly enough, complicated the already tricky turnaround.”

Ironically, she even couldn’t sell the company correctly: Verizon initially agreed last July to buy Yahoo’s business for $4.83 billion. Then Yahoo disclosed two large security breaches, one in 2014 that hit more than 500 million accounts and another in 2013 that affected more than 1 billion accounts. Naturally, Russians were promptly blamed for the hack.

The security incidents allowed Verizon to lower the purchase price by $350 million.

In March, Yahoo’s board of directors said Ms. Mayer wouldn’t receive her 2016 cash bonus or 2017 equity awards after a board investigation found that she and other senior executives failed to “properly comprehend or investigate” the 2014 breach.

However, we are confident that with $186 million in the bank in a few months, she will be just fine.

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Access Award Winning Daily and Weekly Updates Here

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• Trump’s 15% Corporate Tax Push Sets Stage for Clash With Ryan (BBG)
• U.S. and North Korea Flex Military Muscles (BBG)
• Le Pen’s father criticizes her presidential campaign as she steps back from party (Reuters)
• Eight Maps That Explain France’s Macron-Le Pen Election (BBG)
• Alphabet’s Waymo Offering Families Rides in Self-Driving Cars (WSJ)
• UK’s May to host meeting with Japanese PM Abe on Friday (Reuters)
• Trump Slaps Duty on Canadian Lumber, Intensifying Trade Fight (BBG)
• Government costs could rise $2.3 billion without Obamacare payments (Reuters)
• U.S. Suspects Russia Supplying Small Arms to Taliban in Afghanistan (WSJ)
• Russia calls U.S. allegation it arms Taliban unsubstantiated (Reuters)
• Kremlin says Ukraine is pushing away breakaway region with power cut (Reuters)
• The World’s Biggest Stock Markets Haven’t Been This Split Since 2008 (BBG)
• Politico Names Investment Banker as New CEO (WSJ)
• Analyst Who Made $37,000 in an Hour Now Faces $815,000 Fine (BBG)
• Betting Worst Is Over, Steelmakers Spending Again After Cuts (BBG)
• Credit Suisse Spends to Boost Booming Energy Team Amid Cutbacks (BBG)
• Netflix clinches licensing deal with China’s iQiyi.com (Reuters)
• Pentagon Sees Lockheed F-35 Deliveries Falling Behind This Year (BBG)
• Ready for take-off? China’s answer to Boeing now just needs to sell (Reuters)

 

Overnight Media Digest

WSJ

– The U.S. Supreme Court on Monday rejected a request from General Motors Co to limit the fallout from its ignition-switch defect. The court denied the auto maker’s request to review a lower-court ruling that gave some victims’ families the power to sue over defective ignition switches. http://on.wsj.com/2q0rtqi

– Express Scripts Holding Co said Monday it doesn’t expect Anthem Inc its biggest customer, to extend a pharmacy-benefits management agreement slated to expire at the end of 2019. http://on.wsj.com/2q0dC3z

– Paint giant PPG Industries Inc on Monday raised its offer for Dutch rival Akzo Nobel NV to $26.4 billion, the U.S. firm’s third takeover attempt in a two-month-long, unsolicited courtship. http://on.wsj.com/2q05Ru5

– Aerospace parts maker Arconic Inc on Monday delayed its much-anticipated annual meeting and tried to defuse a long-running spat with activist investor Elliott Management Corp that last week forced the company’s chief executive to step down. http://on.wsj.com/2q00jjy

– Samsung Electronics Co Ltd said it would roll out two software updates for its new Galaxy S8 smartphone this week after users complained of red-tinted screens and patchy Wi-Fi connections. http://on.wsj.com/2q0lwty

 

FT

Albertsons is exploring a takeover of high-end grocer Whole Foods Market Inc, according to two people familiar with the matter. Private equity group Cerberus Capital Management that backs Albertsons has had preliminary discussions with bankers about making a bid for Whole Foods.

British luxury retailer Jimmy Choo Plc has put itself up for sale after struggling to retain the cachet it held in the early 2000s. JAB Holdings, that owns 70 percent of the shoemaker, is seeking buyers for the brand and also said it was considering a sale of Swiss luxury footwear and accessories company Bally International.

U.S. paint maker PPG Industries Inc raised its proposed offer for Dutch rival Akzo Nobel by 8 percent to 26.9 billion euros ($29.22 billion), increasing the pressure on Akzo to enter into talks. PPG said its proposal was a “final” invitation to Akzo to enter negotiations.

 

NYT

– President Trump has instructed his advisers to make cutting the corporate tax rate to 15 percent a centerpiece of his tax-cut blueprint to be unveiled this week, according to people with knowledge of his plans, even if that means a significant reduction in revenue that could jettison his campaign promise to curb deficits. http://nyti.ms/2q0iyW0

– Yahoo Inc shareholders will vote on June 8 on whether to sell the company’s internet businesses to Verizon Communications Inc for $4.48 billion. A yes vote, which is widely expected, would end Marissa Mayer’s largely unsuccessful five-year effort to restore the internet pioneer to greatness. http://nyti.ms/2q0d0ux

– The scandal at Wells Fargo & Co over the creation of millions of fake bank accounts cost more than 5,300 people their jobs, many of them tellers and other low-level employees. The next group of employees who could lose their jobs are Wells Fargo’s board of directors, who face re-election on Tuesday at the bank’s annual shareholder meeting. http://nyti.ms/2q0nI44

– NBC News said that Megyn Kelly would start her new job next month, with a Sunday evening showcase set to start in June. Her new morning show, which is expected to replace an hour of “Today”, is scheduled for the fall. http://nyti.ms/2q08tZ8

– After 20 years as the king of cable news, O’Reilly’s return to broadcasting came not on camera, but in a 19-minute recorded podcast on his personal website. http://nyti.ms/2q01iAg

 

Canada

THE GLOBE AND MAIL

** Prime Minister Justin Trudeau pushed for the Royal Canadian Mounted Police to investigate leaks of classified cabinet deliberations regarding a naval supply ship project that eventually led the police to accuse Vice-Admiral Mark Norman of breach of trust, according to an insider. https://tgam.ca/2pvmC0z

** Ontario will provide residents in Hamilton, Thunder Bay and Lindsay with free income, part of the government’s plan to test whether the extra funds will help improve their job prospects and quality of life. https://tgam.ca/2pvq630

** Canadian National Railway Co rode a wave of new shipping contracts and record volumes to a 12 percent jump in first-quarter profit. Revenue rose by 8 percent. https://tgam.ca/2pvosOV

NATIONAL POST

** The Ontario Securities Commission has been asked to halt Cenovus Energy Inc’s blockbuster deal to buy ConocoPhillips’ Canadian assets pending a shareholder vote. http://bit.ly/2pvrKlq

** A decade-long ceasefire in the U.S.-Canada softwood lumber war ends on Tuesday with the U.S. Commerce Department expected to slap a preliminary countervailing duty of around 20 percent on Canadian lumber shipments, in response to a complaint from U.S. lumber producers. http://bit.ly/2pvgTI4

 

Britain

The Times

– PPG raised its offer to 24.6 billion euros to acquire Dulux paint maker Akzo Nobel, which is more than 17 percent higher than its first sighting shot in early March. This is the third takeover offer and an apparent threat that this would be the last friendly approach. http://bit.ly/2pbPZC0

– Anglo American reported higher production levels for the first quarter of the year as its outgoing chairman confirmed that the recovery in commodity prices had removed the pressure to sell off its mines. http://bit.ly/2pbQbkI

The Guardian

– Shares in British Gas owner Centrica, UK’s largest energy supplier, fell 4.2 percent, while SSE shares fell 3.2 percent in the wake of the Conservative party’s pledge to cap energy bills. http://bit.ly/2pc2Lkd

– Foster + Partners, plans to lay off nearly 100 people, and blamed the uncertainty around construction projects caused by last summer’s Brexit vote. http://bit.ly/2pbHBCH

The Telegraph

– Vodafone’s UK arm has wasted millions of pounds on pay-TV channel contracts that it is now seeking to escape, in the latest sign of the telecoms giant’s challenges in its home market. It now faces penalty payments to break the agreements early. http://bit.ly/2pbNek4

– Activist investor Elliott Advisors revealed it has built up a 6.8 percent stake in British engineering giant WS Atkins , which has just accepted a takeover offer. http://bit.ly/2pbNjnP

Sky News

– Shares in British luxury brand Jimmy Choo have soared to a record high after it put itself up for sale. It was to conduct a review of various strategic options to “maximise value for its shareholders,” including the possibility of a sale. http://bit.ly/2pbP4Se

– Co-operative Bank will this week pick new advisers to negotiate a restructuring deal with its investors as hopes of an outright sale of the company diminish. http://bit.ly/2pbZr8F

The Independent

– UK companies risk reducing the issue of diversity to a mere footnote of other priorities, even though it’s a key driver of productivity and competitiveness, according to director-general of the Confederation of British Industry, Carolyn Fairbairn. http://ind.pn/2pc3l1i

 

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North Korea conducted what various media outlets have dubbed as its largest ever live-fire exercise on Tuesday to mark the 85th anniversary of the foundation of its military, as a U.S. submarine docked in South Korea in “a show of force” amid growing concern a showdown between the US and North Korea may be imminent.

The port call by the USS Michigan, first reported by Reuters, came as the USS Carl Vinson carrier group steamed toward Korean waters and is expected to arrive over the next 24 hours, while top envoys for North Korea policy from South Korea, Japan and the United States met in Tokyo.

The nuclear-powered submarine the USS Michigan, which arrived in the South Korean port of Busan, is built to carry and launch ballistic missiles and Tomahawk cruise missiles.

Some have speculated that North Korea would conduct another nuclear test or long-range missile launch in defiance of U.N. sanctions, perhaps on the Tuesday anniversary of the founding of its military, however the absence of such an event has led to speculation Trump’s hardline tactics, together with pressure from China may have paid off. So far, instead of a nuclear test or big missile launch, North Korea deployed a large number of long-range artillery units in the region of Wonsan on its east coast for a live-fire drill, South Korea’s military said. North Korea has an air base in Wonsan and missiles have also been tested there.

“North Korea is conducting a large-scale firing drill in Wonsan areas this afternoon,” the South’s Office of Joint Chiefs of Staff said in a statement. The South Korean military was monitoring the situation and “firmly maintaining readiness”, it said. The South’s Yonhap News Agency said earlier the exercise was possibly supervised by North Korean leader Kim Jong Un.

Meanwhile, North Korea’s state media maintained its jawboning and was defiant in a commentary marking the 85th anniversary of the foundation of the Korean People’s Army, saying its military was prepared “to bring to closure the history of U.S. scheming and nuclear blackmail”.

“There is no limit to the strike power of the People’s Army armed with our style of cutting-edge military equipment including various precision and miniaturized nuclear weapons and submarine-launched ballistic missiles,” the official Rodong Sinmun newspaper said in a front-page editorial.

Further adding to the pressure on its northern neighbor, South Korea’s navy said it was conducting a live-fire exercise with U.S. destroyers in waters west of the Korean peninsula and would soon join the carrier strike group approaching the region.

China, North Korea’s sole major ally which nevertheless objects to its weapons development, has repeatedly called for calm, and its envoy for Korean affairs, Wu Dawei, was in Tokyo on Tuesday.

“We hope that all parties, including Japan, can work with China to promote an early peaceful resolution of the issue, and play the role, put forth the effort, and assume the responsibility that they should,” Chinese foreign ministry spokesman Geng Shuang told reporters in Beijing.

Japan’s envoy on North Korea, Kenji Kanasugi, said after talks with his U.S. and South Korean counterparts that they agreed China should take a concrete role to resolve the crisis and it could use an oil embargo as a tool to press the North. “We believe China has a very, very important role to play,” said the U.S. envoy for North Korea policy, Joseph Yun.

South Korea’s envoy, Kim Hong-kyun, said they had also discussed how to get Russia’s help to press North Korea. Japanese Prime Minister Shinzo Abe is expected to meet Russian President Vladimir Putin on April 27, the Kremlin said. It did not elaborate.

Still, despite the lack of a nuclear test or missile launch, clouds are gathering over Pyongyang. The State Department said on Monday U.S. Secretary of State Rex Tillerson would chair a special ministerial meeting of the U.N. Security Council on North Korea on Friday. Tillerson, along with Defense Secretary Jim Mattis, Director of National Intelligence Dan Coats and Joint Chiefs chairman General Joseph Dunford, would also hold a rare briefing for the entire U.S. Senate on North Korea on Wednesday, Senate aides said.

A North Korean foreign ministry spokesman said those meetings called by U.S. officials clearly reflected the U.S. pressure that could “ignite a full-out war” on the Korean peninsula.

 

“The reality of today again proves the decision to strengthen nuclear power in quality and quantity under the banner of pursuing economic development and nuclear power was the correct one,” the unidentified spokesman said in a statement issued by the North’s state media.

On Monday, Trump called for tougher U.N. sanctions on the North, saying it was a global threat and “a problem that we have to finally solve”.

Taking a softer line, the official China Daily said it was time for Pyongyang and Washington to take a step back from harsh rhetoric and heed calls for a peaceful resolution. “Judging from their recent words and deeds, policymakers in Pyongyang have seriously misread the U.N. sanctions, which are aimed at its nuclear/missile provocations, not its system or leadership,” the newspaper said in an editorial.

“They are at once perilously overestimating their own strength and underestimating the hazards they are brewing for themselves.”

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After yesterday’s violent gap up in stocks across the globe in response to the “expected” outcome from the French election, today the risk on sentiment has continued if to a lesser extent, with stocks in Europe, Asia all rising while S&P futures point to a higher open. Yen, gold decline, while the euro traded as high as 1.09 this morning before fading some gains; oil is up modestly.

While today’s surge may have been more muted, world stocks hit a new record high on Tuesday, with investors still cheering Macron’s victory in the first round of the French presidential election, supported by speculation about U.S. tax reform and the overnight report that Trump has conceded on the border wall, eliminating a government shutdown as a potential risk. As shown below, the MSCI All World Index has jumped to a new all time high, boosted by strong Asian markets.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6%, hovering near its highest level since June 2015 hit earlier in the session, on its fourth straight day of gains. Japan’s Nikkei rose more than 1 percent to a three-week high aided by a weaker yen. South Korea’s also advanced 0.7 percent to its highest level since April 2015. China equities climbed from a three-month low on speculation that a selloff over concerns of a regulatory crackdown were overdone. Australia and New Zealand were closed for Anzac Day.

European stocks hovered near a 20-month high, with the Dax flirting with all time highs. The Stoxx Europe 600 index edged 0.2% higher after jumpin 2.1% on Monday to the highest since August 2015, with property and technology shares helping to underpin a global rally. French shares pulled back 0.1 percent, having risen 4.1 percent on Monday in their biggest daily gain since August 2012. Futures on the S&P 500 added 0.1 percent. The index climbed 1.1% Monday to within 1% of its all-time closing high.

These gains helped push MSCI’s world stocks index to a fresh all-time high after chalking up its biggest rise since shortly after Britain’s vote last June to leave the European Union.

So with attention to France fading, if only until the runoff round in the election, “attention will fast move over to Washington with the outline of the Trump tax plan likely tomorrow, the need to avoid the shutdown on Friday and the end of the first 100 days of Trump on Saturday” with the White House determined that higher growth can offset tax cuts, DB’s Jim Reid wrote in his overnight note. 

Commerzbank currency strategist Thu Lan Nguyen in Frankfurt, however, said that “(the second round) is going to be a non-event for the market. Markets have pretty much priced out the risk of a Le Pen victory, and rightly so, because the first round of the elections has shown that the polls in France were correct…and this increases the confidence in the polls for the second round…It’s highly likely that (Macron) is going to win.”

With one of the year’s major risks to markets seen less acute, markets were also looking ahead to other factors, including U.S. President Donald Trump’s promise to announce on Wednesday “a big tax reform and tax reduction”. The Wall Street Journal reported Trump wanted to cut the corporate tax rate to 15 percent. The White House budget director told Fox News on Monday Trump’s announcement would focus on principles, ideas and rates. “I’m becoming little concerned over the President’s big announcements, especially since we haven’t seen any major legislative achievement so far and he will be marking his 100th day in the White House this Saturday,” said FXTM chief market strategist Hussein Sayed in a note.

Elsewhere, the ECB said in a quarterly survey of lenders that while banks would tighten access to credit for companies in the second quarter, lending volumes were still expected to rise.

The euro added to Monday’s gains against the dollar, rising 0.2 percent to $1.0884, albeit off Monday’s high of $1.0940. The yen, however, pulled back 0.6% to 110.39 per dollar. Sterling rose 0.1 percent to $1.2806. The Canadian dollar 0.5 percent to C$1.3561 per U.S. dollar after the United States announced new duties averaging 20 percent on Canadian softwood lumber imports.

French and German 10-year government bond yields rose and the spread between them hit its tightest since November at around 41 basis points. The two-year spread was its narrowest since late January. The yield on French 10-year notes rose two basis points to 0.85 percent, after tumbling 11 basis points in the previous session. German benchmark yields added four basis points to 0.37 percent. U.S. bonds headed for a fifth day of declines, with yields on 10-year Treasuries climbing three basis points to 2.31 percent.

Gold fell 0.4 percent to just under $1,270 an ounce. Copper reversed falls in Asia and headed higher, last trading 0.7 percent higher at $5,695 a tonne. Oil prices steadied after six straight days of losses. Brent crude, the international benchmark LCOc1, was just 4 cents down on the day at $51.59 a barrel.

Economic data include new home sales, April consumer confidence. Scheduled earnings include AT&T, Coca-Cola, McDonald’s. Alphabet Inc., Microsoft Corp., Amazon.com Inc., Twitter Inc., Intel Corp., Credit Suisse Group AG, Barclays Plc, Bayer AG, Daimler AG and Total SA are among major companies releasing results this week. The Bank of Japan is widely expected to keep the settings on its monetary easing program unchanged at the end of a two-day policy meeting on Thursday. Though inflation remains well below the central bank’s 2 percent target, it’s ticking up. The European Central Bank sets monetary policy later that same day. With officials indicating little chance of a policy change, the focus will be on any signals from President Mario Draghi that the ECB is starting to discuss an exit from its extraordinary stimulus.

Global Market Snapshot

• S&P 500 futures up 0.1% to 2,372.75
• STOXX Europe 600 up 0.1% to 386.57
• MXAP up 0.8% to 148.90
• MXAPJ up 0.9% to 485.69
• Nikkei up 1.1% to 19,079.33
• Topix up 1.1% to 1,519.21
• Hang Seng Index up 1.3% to 24,455.94
• Shanghai Composite up 0.2% to 3,134.57
• Sensex up 0.8% to 29,898.45
• Australia S&P/ASX 200 up 0.3% to 5,871.78
• Kospi up 1.1% to 2,196.85
• German 10Y yield rose 2.5 bps to 0.354%
• Euro up 0.2% to 1.0888 per US$
• Brent Futures up 0.1% to $51.67/bbl
• Italian 10Y yield fell 8.0 bps to 1.888%
• Spanish 10Y yield rose 4.4 bps to 1.649%
• Brent Futures up 0.1% to $51.67/bbl
• Gold spot down 0.5% to $1,270.54
• U.S. Dollar Index down 0.1% to 99.00

Top Overnight News from Bloomberg

• President Donald Trump’s plan to slash the corporate tax rate to 15 percent is setting up a showdown with House Speaker Paul Ryan, who has called for a tax plan to pay for itself
• French billionaire Bernard Arnault moved to consolidate control over Christian Dior for about 12.1 billion euros ($13.2 billion), folding the fashion house’s operations into the LVMH luxury empire in one of his biggest transactions
• Rising defaults in China are unearthing hidden debt at companies across the country
• Warburg Pincus, the private equity firm where former Treasury Secretary Tim Geithner is president, is targeting $1.6 billion for its first fund dedicated to financial services
• Credit Suisse Group, two years into a belt-tightening turnaround plan, splurged a bit last month in Texas
• Trump Slaps Duty on Canada Lumber, Intensifying Trade Fight
• Trump Signals Shift on Wall Funding to Avert Government Shutdown
• U.S., North Korea Flex Military Muscles as Tensions Simmer
• Netflix in China Licensing Deal With IQiyi, Variety Reports
• Berkshire Hathaway Buys 3.88m Liberty Siriusxm Series C Shares
• Diebold Nixdorf to Support TD’s 5,000 ATMs in North America

Asian equity markets maintained the positive momentum from the strong Monday close where the French election relief rally spilled over and tax cut hopes also buoyed sentiment. Nikkei 225 (+1%) was underpinned as USD/JPY reclaimed the 110.00 handle, while the KOSPI (+1%) also shrugged off geopolitical concerns amid no further signs of provocation from North Korea which conducted a firing drill to commemorate its 85th military anniversary. Elsewhere, Shanghai Comp. (+0.2%) and Hang Seng (+1.2%) were higher following an increased liquidity injection by the PBoC, although mainland bourses were somewhat restrained on trade concerns and the ASX 200 was shut for ANZAC day. Finally, 10yr JGBs continued to reclaim the losses seen from the French election with prices back above the 151.00 level, while today’s enhanced liquidity auction for 10yr, 20yr and 30yr maturities also drew greater interest. PBoC injected CNY 40bIn in 7-day reverse repos, CNY 20bIn in 14-day reverse repos and CNY 20bIn in 28-day reverse repos.

Top Asian News

• China Markets Reel as Banks Unwind $1.7 Trillion in Shadow Funds
• India’s Central Bank Chief Says Cash Ban’s Effects ‘Transitory’
• Iron Ore Seen Slumping for Years After Hitting February Peak
• Japan Post Books $3.6 Billion Charge on Toll Holdings Writedown
• IRB InvIT Plans to Raise up to 50.4b Rupees Through IPO

European bourses have seen a tamer session with local markets trading in mixed fashion, CAC 40 slightly trims post-election gains, falling a meagre 0.1%, similarly with the DAX which hovers around record highs. In terms of equity specific newsflow, LVMH outperforms after reports that they are to simply the Christian Dior which would subsequently boost their earnings, while Peugeot shares slip this morning on news that French prosecutors are to conduct a formal investigation over diesel emissions. Across credit markets, OATs are marginally extending on their outperformance, with the 10yr tightening against German benchmark to around 41bps. The German curve has shifted to a bear steepening bias with the 30yr +0.25bps.

Top European News

• LVMH to Buy Christian Dior Couture; Arnault Christian Dior Bid
• Arnault to Buy Rest of Dior for $13 Billion, Bolstering LVMH
• U.K. Faces $2 Billion EU Demand on Customs Failures, Times Says
• U.K. Meets Borrowing Forecasts But Consumer Slowdown Hits VAT
• Rocket Internet Narrows Losses, Boosts Sales at Key Startups
• Oil Steadies After Six-Day Slide as U.S. Stockpiles Seen Falling
• German-Only Power Futures Start Trading Ahead of Market Split
• Dutch Minister Kamp Continues to Support Independent Akzo: BNR
• Brexit Districts in Tory Sights as May Seeks Bigger Majority
• Volvo AB Shares Hit 10-Year High on Construction-Equipment Sales

In currencies, the euro rose 0.2 percent to $1.0892, retreating from near the highest level in five months. The yen fell 0.6 percent to 110.47 per dollar. The currency dropped 0.6 percent in the previous session. The Bloomberg Dollar Spot Index was little changed, after slipping 0.5 percent Monday. It has been another trading session where London liquidity calms things down to (less than) a cantor. We continue the CAD under pressure in the wake of the US trade case against Canada, where they propose a tariff on lumber tax to the tune of 20% – worth USD 1.0bIn on current imports stateside. However, the first line of USD/CAD resistance looks to have held, but we will have to contend with North American trade ahead, so we factor in the broader resistance area from 1.3600 up to 1.3675. 1.3850 is the next lever to watch if we manage to work through here. Tariffs on dairy produce have also been threatened given Canadian reclassification on ultra-refined milk from the US, and this has had a clear impact on the NZD, which has slipped below .7000 against the USD, and through 1.0800 vs the AUD. In the meantime, the near-term calm in risk sentiment has allowed USD/JPY bulls some modest upside through the lower 110.00’s, but we start coming up against some tech resistance through 110.50, with the slow grind higher stalling in the last hour or so accordingly.

In commodities, gold lost 0.5 percent to $1,270.46 after slipping 0.6 percent on Monday. Oil advanced 0.3 percent to $49.40, rebounding from six straight days of losses before U.S. government data that’s forecast to show crude stockpiles fell for a third week.  Copper prices have seen some upside pressure as reports of the Chilean earthquake hit the wires. This is in tandem with the end of the strikes in the Cerro Verde mine in Peru. Market is now looking to test USD2.60 again, with the current risk on mood also supportive for base metals in general. Iron ore struggling though, as Chinese stockpiles weigh. Little risk related relief for Oil however, as US production tempers the impact of the current production cut agreement, the extension of which is still seen in the balance, but recent OPEC rhetoric remains hopeful. Below USD50.00, we see plenty of support ahead of USD45.00, the bottom end of the broader range in WTI. Precious metals still fading slightly, as Gold now floundering ahead of USD1270.00. Silver looks to have established near term footing, but risk/USD sentiment flighty at present to maintain a modicum of support.

US Event Calendar

• 9am: FHFA House Price Index MoM, est. 0.4%, prior 0.0%
  • S&P CoreLogic CS 20-City MoM SA, est. 0.73%, prior 0.86%
  • S&P CoreLogic CS 20-City YoY NSA, est. 5.77%, prior 5.73%
  • S&P CoreLogic CS 20-City NSA Index, prior 192.8
  • S&P CoreLogic CS US HPI YoY NSA, prior 5.87%
  • S&P CoreLogic CS US HPI NSA Index, prior 185.5
• 10am: New Home Sales, est. 583,500, prior 592,000; New Home Sales MoM, est. -1.44%, prior 6.1%
  • Conf. Board Consumer Confidence, est. 122.5, prior 125.6
  • Conf. Board Present Situation, prior 143.1
  • Conf. Board Expectations, prior 113.8
• 10am: Richmond Fed Manufact. Index, est. 16, prior 22

 

Looking at the day ahead today, we got April confidence indicators out of France this morning (manufacturing confidence: 108 actual, 104 expected; 105 previous). Shortly after that we got the ECB’s bank lending survey numbers, which saw slightly tighter standards for business loans in Q2. In the US we will get housing market data in the form of the S&P/Case-Shiller house price index and FHFA house price index (+0.4% mom expected) for February. Thereafter we will see confidence indicators for the month ahead in the form of the conference board consumer confidence number (122.5 expected; 125.6 previous) and the Richmond Fed manufacturing survey (16 expected; 22 previous), both of which are expected to drop given growing policy uncertainty in the US.

DB’s Jim Reid concludes the overnight wrap

The only tears shed yesterday in markets were ones of pure joy as risk-on dominated following the first round of the French elections. Over in Europe the STOXX 600 (+2.1%) hit its highest levels since mid Aug 2015, while the CAC rallied by +4.1%. Every single sector within the STOXX index was safely in positive territory, with European banks leading the way with outsized gains of 4.8% on the day (Eurozone banks in particular were up by 7.4%). French banks were some of the best performers on the day with Credit Agricole (+10.9%), Societe Generale (+9.9%), Natixis (+9.0%) and BNP Paribas (+7.52%) all within the top ten gainers in Europe. Italian banks also benefited from the broader risk on sentiment as Unicredit (+13.2%) and UBI (+10.4%) both posted double digit returns. Other regional equity indices also reflected the broader relief rally as the FTSE, DAX, and FTSE MIB all gained by +2.1%, +3.4% and 4.8% on the day. Markets over in the US also benefited from the risk on sentiment as the S&P500 (+1.1%) and Dow (+1.05%) both posted gains, as financials were the top performer within the S&P with gains of 2.2% on the day. Market volatility measures also dipped aggressively yesterday with the VIX (-3.7pts; -26%) and VSTOXX (-8.9pts; -35%) giving up recent increases to drop to three week lows.

Credit markets also saw broad risk on moves. Main and Crossover tightened by -6bps and -16bps on the day, while Senior and Sub Financials tightened by -10bps and -20bps. French Bank Senior CDS also rallied as Societe Generale (-21bps), BNP (-18bps), and Credit Agricole (-16bps) all saw significant spread tightening. Over in the US CDX IG and HY also tightened by -3bps and -12bps.

Over in government bond markets German bunds (2Y: +10bps; 10Y: +8 bps) and US treasuries (2Y: +5bps; 10Y: +2.5bps) sell off across all maturities. On the other hand French OAT yields dropped across the curve (2Y: -14bps; 10Y: -11bp) as the OAT-Bund 10Y spread tightened by -19bps. Italian BTPs also saw yields drop across the term structure (2Y: -5bps; 10Y: -8bps) amid the rally. Over in currency markets the Euro ticked by +1.05% on the day after giving up larger gains at the open and then hardly moving all day. Commodity markets however remained largely unaffected by the risk on rally: WTI was down marginally at -0.7% while Gold remained fairly flat after falling slightly in the Asian session the night before.

Attention will fast move over to Washington with the outline of the Trump tax plan likely tomorrow, the need to avoid the shutdown on Friday and the end of the first 100 days of Trump on Saturday. The WSJ reported last night that Mr Trump has ordered aides to prioritise cutting taxes ahead of budget neutrality and in particular target a 15% corporate tax rate. Treasury Secretary Mnuchin was bullish by telling reporters at the White House that the tax plan will “pay for itself with economic growth” and that Mr Trump is determined to get sustained growth of 3% or higher. So all eyes on the US for the next few days.

Asian markets are generally in decent shape overnight with the Nikkei +0.8% higher, the Hang Seng +0.95% and the Shanghai Comp +0.45% as we go to print. Global bond yields are pretty flat as is the Euro against the Dollar.

Returning back to yesterday, the latest ECB CSPP numbers were released. They remain inconclusive as to whether the ECB have decided against tapering corporate purchases. The Easter period has created too many distortions to give a clear answer. If you assume the €1.482bn of buying is spread over 4 business days this averages €371mn per day very close to the daily average of €368mn since the program started. However if you feel the ECB would want to try to offset the loss of a day with more buying then the numbers are optically weaker. We should have a clearer view next Tuesday (after bank hols) as to where we stand as they’ll publish the full monthly numbers then for both CSPP and PSPP.

Away from the French elections there was little in way of data to drive markets yesterday. In Europe we got the April IFO survey in Germany which was mostly positive: the business climate indicator (112.9 vs. 112.4 expected) and the current assessment indicator (121.1 vs. 119.2 expected) both clocked in above expectations. However IFO expectations marginally disappointed by dropping to 105.2 (vs. 105.9 expected; 105.7 previous). Over In the US we got the April Dallas Fed manufacturing activity survey which ticked down marginally to 16.8 against expectations of a slight increase to 17.0 (16.9 previous).

Looking at the day ahead today, we will get the April confidence indicators out of France this morning (manufacturing confidence: 105 expected; 104 previous). Shortly after that we will get the ECB’s bank lending survey numbers. Over in the UK we will get public sector net borrowing data for March which is expected to rise to 1.5bn (1.1bn previous). Heading over to the US we will get housing market data in the form of the S&P/Case-Shiller house price index and FHFA house price index (+0.4% mom expected) for February. Thereafter we will see confidence indicators for the month ahead in the form of the conference board consumer confidence number (122.5 expected; 125.6 previous) and the Richmond Fed manufacturing survey (16 expected; 22 previous), both of which are expected to drop given growing policy uncertainty in the US.

Earnings will continue to be a big focus today, as we see AT&T and Caterpillar report today amongst others.

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Yesterday, Bloomberg’s Richard Breslow expressed surprise at the exuberant market euphoria that resulted from a French election outcome that was “everybody’s base case.” 24 hours later, his surprise remains and as he says in his latest daily note, “what I do question is why everyone keeps telling me this was their forecasted and most likely outcome, yet the world has changed.” Maybe nothing Breslow answers, and muses that it is all just the market gaps without any actual price discovery:

What we’ve had so far this week, I know it’s only Tuesday, has been a repricing without the benefit of meaningful price discovery along the way. Gaps during the Asia-Pacific opening are one thing. Ones followed by flat-lined price action suggest order books emptied followed by “So what do we do now?” And if there isn’t a quick follow-through in momentum, the next question will be “What have we done?”

That, however would imply an inefficient market, and Breslow concedes as much: “Markets have proven they do a poor job of assessing political risk. Partially because it’s hard, the implications of outcomes often utterly unpredictable and, the dirty secret traders hate to admit, they sometimes prefer outcomes for others that, as citizens of that jurisdiction, they wouldn’t choose. Having said that, the “worst case” scenario that was avoided was never very likely.”

Still, for those traders who trade volatility, don’t despair: “The good news is so many assets stopped at or near important technical levels, which makes risk-reward really good for trading, no matter your view. Take what you can get”

True, it’s just that with $18 trillion in central bank liquidity out there, most will take the upside as few shorts have been left standing after nearly a decade of central bank intervention.

Breslow’s latest Trader’s Note below.

Where to Should Be Preceded by Why We Are Here

 

The problem I have with the reaction to the first round of the French presidential vote isn’t from the immediate movements of the euro nor European peripheral spreads to Germany. They were meaningful, reflected a mixture of relief and illiquidity and broke no new ground. What I do question is why everyone keeps telling me this was their forecasted and most likely outcome, yet the world has changed. 

 

Of course, if that is true, then people offering advice should be a lot more humble and include many more caveats with their conviction-view prognoses. But is it really likely that the calculus has changed from Sunday to warrant EUR/USD now beginning an ascent to a level only seen at the height of the initial panic on the night of the U.S. election? And we know what ensued after that.

 

What we’ve had so far this week, I know it’s only Tuesday, has been a repricing without the benefit of meaningful price discovery along the way. Gaps during the Asia-Pacific opening are one thing. Ones followed by flat-lined price action suggest order books emptied followed by “So what do we do now?” And if there isn’t a quick follow-through in momentum, the next question will be “What have we done?”

 

Markets have proven they do a poor job of assessing political risk. Partially because it’s hard, the implications of outcomes often utterly unpredictable and, the dirty secret traders hate to admit, they sometimes prefer outcomes for others that, as citizens of that jurisdiction, they wouldn’t choose. Having said that, the “worst case” scenario that was avoided was never very likely.

 

And remember, when judging the global market reaction, there were about 12 hours from the election results before you could trade the assets most directly affected. That’s a lot of proxy hedging. Worth 30 big figures in USD/MXN?

 

The good news is so many assets stopped at or near important technical levels, which makes risk-reward really good for trading, no matter your view. Take what you can get

 

“Trader’s Notes” are authored by Richard Breslow, a former FX trader and fund manager who writes for Bloomberg.

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